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8/01/2011

Real Estate, Coffee

FARM: Farmer
Market Cap : 123.98M
Enterprise Value: 126.35M

I purchased FARM for several reasons but my conviction was low.Horrible management and worsening financial position;the situation has similarities to SYMS but at the right price it may belong in some portfolios.

Thanks for the post. I have been looking at this Company very closely, initially as a short. However, the unencumbered tangible asset value makes the short too risky. With the price so depressed, I have recently begun to assess the stock's merits for a long.

My question for you is how does the Company monetize this real estate value, or more specifically, return this value to equity holders. In my view, the best case scenario is that the Company is purchased by a strategic buyer that needs extra roasting capacity and scale. If this were to happen, the price would almost certainly be well above the current share price based on Net Asset Value alone (LIFO accounting also understated the value of the coffee inventories). But, this presumes that FARM's board, which receives a proverbial "F" for corporate governance for the past 12 years, will realize the futility of their current business model (i.e. bloated distribution platform, commodity pricing pressure it cannot absorb) and do the right thing for the equity holders. Given the Company abysmal track record, I am skeptical that the Board actual takes shareholder interests into account (of course the Farmer family controls enough common stock that the interests should theoretically be aligned). My worry would be that the Company refuses to admit defeat, sells off real estate piece-meal or engages in sale-leaseback transactions, and continues to operate this business as a going-concern (which is value destructive for the equity). In other words, unless the Company either a) goes bankrupt or b) gets bought out, then it is possible that the tangible asset value will remain tied up in low-returning real estate properties that the Company needs to operate its dying business. Do you have any thought? Also, do you have any idea what the collective real estate portfolio may be worth? Thanks so much.

Yes it was an asset play on real estate and the coffee inventories were below fair market value. Michael Price did mention the coffee inventory during a Bloomberg interview.

Warren Buffett said ... <>

So having said that i agree management is hopelessly incompetent and reminds me of SYMS.

My thought was the company's diversified 451 million in TTM revenues, 97 million enterprise value,high insider ownership, multiple owned locations, one property with an assessed total value of 20.8 million and recent acquisitions ...although risky and has attracted shorts it looked like something that was worth adding to my "farm team":)

Sorry, I don't have an amount for the entire real estate portfolio. And I agree there is a risk they sell or use as collateral pieces of the real estate for future working capital needs. With management suspending the dividend, and pension contributions they must realize they must act quickly.

Yes it was an asset play on real estate and the coffee inventories were below fair market value. Michael Price did mention the coffee inventory during a Bloomberg interview.

Warren Buffett said ... "Whenever I read about some company undertaking a cost-cutting program, I know it's not a company that really knows what costs are about. The really good manager does not wake up in the morning and say "This is the day I'm going to cut costs", any more than he wakes up and decides to practice breathing."

So having said that i agree management is hopelessly incompetent and reminds me of SYMS.

My thought was the company's diversified 451 million in TTM revenues, 97 million enterprise value,high insider ownership, multiple owned locations, one property with an assessed total value of 20.8 million and recent acquisitions ...although risky and has attracted shorts it looked like something that was worth adding to my "farm team":)

Sorry, I don't have an amount for the entire real estate portfolio. And I agree there is a risk they sell or use as collateral pieces of the real estate for future working capital needs. With management suspending the dividend, and pension contributions they must realize they must act quickly.